Are you concerned by property purchase tax in Spain and in particular the purchase tax on imputed property values that is being extorted by the Valencia Region (the Provinces of Alicante, Castellon and Valencia)?
Well, if you are not – then you should be alert to the fact that the Valencian government is sometimes imputing a value to a property and then charging you, the buyer, purchase tax on more than you actually paid for the property! This is, of course, outrageous – not least because standard purchase tax in the Valencian Autonomous Region is already an absurd 10%.
So – how does it work?
Well, every property in Spain has a value imputed by the state and this is kept on the Catastral, a national property register (which is separate from the Land Registry). Amongst other things, the value of a property shown on the Catastral is used to work out the annual rates (IBI) that will be charged on a property.
The value of a property as shown on the Cadastal is often very low but this value can be multiplied by a figure (different to every Town Hall/Ayuntamiento in Spain) to come up with an imputed value of a given property.
How do you find out the imputed value of your property (before you buy it)?
Well your lawyer can do this or you can – by going to the Catastral and finding out the Catastral value of your property and the appropriate multiplier.
So, for example, imagine a property has a Cadastral value of 50,000 Euros. You would find out the multiplier applicable to where the property is located (Say Gandia – where the multiplier is 3.03) and multiply this against the Cadastral value to get the imputed value.
Thus, in the case of Gandia, if the Cadastral value of a given property was 50,000 Euros then you would multiply it by 3.03 which would equal 151,500 Euros. This is the imputed value of the property concerned and is the minimum figure upon which you may pay 10% purchase tax. In this case, the maximum purchase tax payable would be 10% of 151,500 Euros (15,151 Euros) – even if you only paid/ were going to pay 100,000 Euros for the property!!
Well, of course, finding that you have to pay additional purchase tax on a property is extremely unwelcome, especially if you did not know beforehand that this would happen and if you are on a tight budget.
In fact, paying more purchase tax in Spain than you anticipated is not something that happens very often, unless the property concerned is being bought for a very low market value. Most properties on the marketplace tend to be over their imputed values and therefore are not subject to further purchase tax. So – on the example above, if you paid (say) 155,000 Euros for your property in Gandia then this would be (5,000 Euros) above the imputed value and you would pay 15,500 Euros purchase tax (10% of the purchase price) and not a cent more.
The moral of all of this is that you must expressly ask your lawyer to check what is the maximum possible purchase tax in Spain you are likely to pay on your proposed property before you buy it – most particularly if you are buying property within the Autonomous Region of Valencia and its three provinces.
For quality property around Valencia see Casalasafor Consultancias
Crucially, you or your lawyer can check the maximum purchase tax in Spain that you are likely to pay. This is a certainty and is not something that cannot be authoritatively checked before you buy (i.e. the facts are not hidden in any way by the state). Indeed, if you want to check out the multiplier for your proposed property in the Valencia Region then look at the last pages of this link where you can see the multiplier figure on the right hand column of the tables, which have all the towns and villages, for example, in the Valencian Region.
As a cautionary note – I have met several people recently who have bought over the past few years who have been seriously caught by the imputed value purchase tax applied by the Valencian government. One acquaintance bought a town house for 110,000 Euros – which, I gather, had an imputed value of 295,000 Euros. At the time of buying the person concerned paid purchase tax of 10,100 Euros only to have an additional (and to her unexpected) purchase tax bill several months later for 18,500 Euros (10% on the imputed value = a total purchase tax payable of 29,500 Euros)!
It hardly needs me to state how morally offensive the Valencian government has been in enforcing this additional purchase tax in Spain when the market/sale price of a property is lower than its ‘imaginary’ imputed value. It is disgraceful and totally unjustifiable.
In fact, apart from being morally extraordinary it is also quite simply bad business. The Valencia Region already has the highest purchase tax (10%) in Spain, having raised it (during the recession!) from 7%. This was plain stupid when, like the rest of Spain, the economy is limping along and desperately needs boosting, with property sales a major income earner and employer of trades people.
Indeed, if the Valencian government had any sense at all they should be reducing their current level of property purchase tax and, obviously, not enforcing their right to the lunatic additional potential purchase tax that occurs on imputed values. However, that would require some element of acumen – and recognition of the extremely bad press, internationally, that has erupted about this justifiably controversial topic.
Incidentally, if you do get a demand for additional purchase tax because of a higher imputed value on your property than you paid – then you can ‘fight’ this. However, it needs to be done within 30 days of the demand (which can occur anytime within four years) for further purchase tax and so you may have little time in which to do so effectively. So, if the possibility of additional purchase tax exists then it is well worth instructing your lawyer to watch out for any further demand and to prepare a case for showing that the true value of your property was what you paid for it!